The Sport Chalet, Inc. board of directors has proposed a recapitalization plan designed to facilitate the orderly transition of control from Norbert Olberz, the principal stockholder, to the Company's management and increase financial flexibility for the Company and its stockholders. The recapitalization plan includes transferring a portion of founder Norbert Olberz's Sport Chalet ownership to Craig Levra, Chairman and Chief Executive Officer, and Howard Kaminsky, Executive Vice President and Chief Financial Officer, and allows current stockholders to retain existing ownership and voting interests.
The proposed recapitalization plan would establish two classes of common stock and would be effected through a 4-for-1 reverse stock split of the outstanding common stock and the reclassification of each post-split share of common stock into a new share of Class B common stock. The Company then would issue a non-taxable stock dividend of seven shares of Class A common stock for each one outstanding share of Class B common stock. Each share of Class B common stock would entitle the holder to one vote, and each share of Class A common stock would entitle the holder to 1/20th of one vote.
To illustrate, a hypothetical Sport Chalet stockholder who currently owns 1,000 shares, after the recapitalization would own 250 Class B shares, each with one vote, and 1,750 Class A shares, each with 1/20th of one vote.
Craig Levra, Chairman and CEO stated, “The proposed recapitalization plan represents a commitment by the Olberz family to the future of Sport Chalet and is a positive step for the Company's stockholders. It is important to note that the recapitalization will not only maintain the ownership and voting interests of our current stockholders but will also increase the Company's liquidity. We are very pleased that the new proposed ownership structure increases the certainty about Sport Chalet's future and enables us to maintain our focus on executing the Company's proven operating strategy and driving long-term growth.
“In the last several years Sport Chalet has reached new milestones, entering new markets outside Southern California and surpassing $300 million in annual sales. We have also invested in systems and infrastructure to position the Company for future growth. We have continued to expand the Company based on the fundamentals established by founder Norbert Olberz and look forward to continuing his vision. As demonstrated by the strong 2005 fiscal year performance we announced separately today, our dedication to Sport Chalet's unique culture and a strong focus on customer service is continuing to fuel our success. We remain committed to building on this momentum, further growing the Company and continuing to enhance stockholder value.”
Under the terms of the proposed recapitalization, Norbert Olberz plans to transfer approximately 973,000 shares of Class B common stock to Craig Levra and Howard Kaminsky, which is intended to give them approximately 45% of the combined voting interests of Class B and Class A common stock when added to the shares of Sport Chalet stock they currently own.
The proposed recapitalization plan would double the Company's total number of shares outstanding from approximately 6,686,368 to 13,372,736. Therefore, the recapitalization is expected to have the same impact on earnings per share as a 2-for-1 stock split. However, the establishment of dual classes of common stock would not affect the relative voting or equity interests of existing stockholders since the reclassification of common stock and issuance of a stock dividend will affect each stockholder in proportion to the number of shares currently owned. The recapitalization plan also includes certain protection features for holders of Class A shares in an effort to ensure parity in the trading of the two classes of common stock.
Additionally, transferred Class B shares from the founder to management will be treated as a contribution to the Company's capital with the offsetting charge as compensation expense. As a result, the Company expects to record a one-time charge in the second quarter of fiscal 2006 which will be based on the stock price at the time of the transfer. The Company estimates the charge would be approximately $1.08 per diluted share based on today's stock price, or approximately $0.54 per diluted share calculated on a post transaction basis. Nasdaq has advised the Company that the recapitalization plan complies with its rules regarding classes of stock with different voting rights.
The recapitalization plan is one of the proposals to be considered and voted upon at the Company's next annual meeting of stockholders following a review of proxy materials by the Securities and Exchange Commission. The Company's annual meeting of stockholders is scheduled for September 20, 2005.
